Added demand for US natural gas from domestic blue hydrogen facilities could hinder LNG development by pricing out certain proposed projects, according to a research note published today.
The report, from Rob West of ThunderSaid Energy, zeroes in on the booming blue hydrogen value chains in the US and the accompanying IRRs, noting that the projects are technically ready, low cost, and the recipients of “enormous” economic support from the Inflation Reduction Act. The high IRRs give the blue hydrogen projects an advantage on cost over LNG developers in competition for US natural gas supplies.
“There are still some open questions about how the IRA incentives will stack, but the economics (and carbon credentials) just seem so much higher for fueling US blue hydrogen value chains than exporting the gas,” West said via email in response to a question.
Around 20 million tons per annum of blue hydrogen projects have been announced in the US in the last 12 months. These projects will most likely be built around autothermal reformers, or ATR, which allows for more carbon from the facility to be captured.
“Assuming that these autothermal reformers can sell their clean hydrogen at $1/kg, plus two thirds of the $85/ton CO2 disposal credits available under the Inflation Reduction Act, plus $1/kg hydrogen production incentives (for hydrogen with a CO2 intensity of 0.5-1.5 kg/kg), this will uplift ATR IRRs above 40%,” the report says.
Meanwhile, assuming an $8/mcf long-term LNG sale price, an LNG project costing around $750/Tpa to build would earn a 10% IRR. An LNG project would need to sell gas at around $25/mcf to rival the 40% return on the blue hydrogen ATR project, the report notes.
“And this is for a full-carbon product, whereas blue hydrogen is already over 90% decarbonized,” the analysis continues.
ThunderSaid energy’s long-term LNG supply models show a global supply ramp of around 280 MTPA by 2030, with almost half of that (130 MTPA) coming from the US. And of the expected US supply additions, almost 60 MTPA is pre-FID, and counted in the model on a “risked basis,” according to the note.
“In other words, if a boom in US blue hydrogen outcompetes new LNG plants for gas feedstocks, then this could realistically lower total global LNG supplies in 2030 by almost 10%,” the note says, adding, “In what was already set to be an under-supplied market.”
